While
gas markets are currently well supplied, the transformation of natural gas
markets from regional systems to more globalised and interdependent markets is
creating new security challenges, according to the International Energy
Agency's latest assessment of global gas security.
The
IEA's second
Global Gas Security Review
provides
an extensive analysis of recent gas balancing issues and risks with related
policy developments linked to security of supply - including the stressed
situations in natural gas and power markets experienced by several southern
Europe countries in the winter of 2016-2017; the diplomatic tensions between
Qatar and some of its neighbouring countries; and the supply risks posed by
recent hurricanes on the United States energy system.
The
report details how importing countries in mature and well-interconnected
markets can still experience unexpected shocks that put strong pressure on the
market. Even in the current low-price environment, suppliers are still exposed
to low-probability but high-impact events that could have potentially serious
consequences for global gas supplies.
"As
recent events demonstrated, the security of natural gas supplies cannot be
taken for granted even with the current low price environment and oversupplied
market," said Dr Fatih Birol, the IEA's executive director. "From
cold spells in southern Europe, to hurricanes in the Gulf of Mexico, to
diplomatic tensions among Gulf countries, energy security is impossible to
ignore."
The
IEA published its first review of global gas security last year to identify and
analyse critical elements of the market, such as physical production
flexibility of the LNG infrastructure, and flexibility in contractual
arrangements. This year's edition updates these metrics and shows a continuing
improvement in supply availability and contractual flexibility, which are
expected to grow in the near future, along with diversification of market
participants.
LNG
contract flexibility appears as an important determinant of the resiliency of
the global gas system. The report's updated analysis of new signed contracts
shows clear evidence of contractual structures becoming less rigid, a trend
evidenced by the growing share of flexible destination contracts, as well as
the decrease in contracts' average duration.
The
report also looks at how contract flexibility will develop over the next five
years. Looking forward, the pool of legacy export contracts with fixed
destination and long duration can be expected to shrink as these expire, and be
replaced by more flexible contracts. The development of US exports emerges as a
major source of additional contractual flexibility. Global portfolio players
would play an increasing role and provide additional flexibility from their
currently open selling positions.
To
improve the risk assessment of importing countries, the report also introduces
a new typology of LNG buyers as a tool to measure market exposure, and related
security of supply issues. This typology also suggests a way to measure future
LNG market evolution.
Download the full report here.